Blog

Business owners may be able to see substantial tax savings faster by conducting cost segregation studies. These studies identify property components and their costs, allowing you to maximize current depreciation deductions by using shorter lives and speeding up depreciation rates available for the qualifying parts of the property.

Depreciation rules

Buildings generally are depreciated over 27.5 years (residential rental) or 39 years (commercial) using the straight-line method. This recovery period applies to real property, which includes buildings as well as structural components such as walls, concrete floors, paint, windows, ceilings and HVAC systems.

You may be able to write off some parts of a property faster than 27.5 or 39 years by separating the parts that aren’t structural. In some cases, you can use a 5-, 7- or 15-year rate of depreciation. There are no hard-and-fast rules for distinguishing personal property eligible for accelerated depreciation from structural components that are depreciated as part of a building. Various factors come into play, including how the property is affixed to the building, whether it’s designed to remain in place permanently, and how difficult it would be to move or remove.

You can also depreciate the allocated portion of certain capitalized indirect or overhead costs — such as architectural and engineering fees. And land improvements that you can isolate with a cost segregation study include parking lots, sidewalks, fences and landscaping.

Consider a cost segregation study when you buy, build or remodel — or when you’ve done so within the last few years. Be aware that the overall benefits may be limited in certain circumstances, such as when a business is subject to the alternative minimum tax or located in a state that doesn’t follow federal depreciation rules. Passive activity loss rules can also defer benefits.

A cost segregation study can be an excellent way for gaining faster write-offs on real estate and construction projects. Contact us to help determine whether you can benefit.

This blog is published to provide you with an informative summary of current business, financial, and tax planning opportunities. Do not apply this general information to your specific situation without additional details. Be aware that the tax laws contain varying effective dates and numerous limitations and exceptions that can not be summarized easily. For details and guidance in applying the tax rules to your specific circumstances, please contact us.

Add New Comment

Security Question: What is 9+5?

Member of
American Institute of Certified Public Accountants
Utah Association of Certified Public Accountants
National Association of Tax Professionals
National Society of Tax Professionals